MortgagesSep 8 2015

BlackRock plans to enter equity release market

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BlackRock plans to enter equity release market

While several major insurers have ruled themselves out of getting into equity release, the world’s largest asset manager has revealed it is looking to manage client money into the expanding market.

Olivier Defaux, managing director and head of European mortgage strategies at BlackRock, told the Financial Conduct Authority’s mortgage conference yesterday (8 September) they are “trying to get into the equity release market” along with buy-to-let and owner occupied space.

He was quick to point out the firm is not looking to become a provider of equity release, rather managing money for clients and partnering up with originators as an agent.

Speaking to FTAdviser, Aviva’s managing director for equity release Craig Colton said while the market may not continue its current growth rate - 29 per cent last year - over the long term, there are still “significant” opportunities.

“This said, there are challenges to turning this opportunity into a reality. Customers now need to make active choices when considering their retirement options.

“I believe an increased market of high quality advisers is one of the keys to both supporting customers and unlocking that growth potential.”

Mr Colton explained one area that may drive growth is the number of interest-only mortgages held by people with no repayment plan.

Nearly one million people are expected to enter retirement in this position in the next 15 years in and the Mortgage Market Review has meant many traditional mortgage providers are unwilling to lend to these people.

In May, annuities specialist MGM Advantage and equity release provider Stonehaven announced they were set to become Retirement Advantage, offering lifetime mortgages as part of the wider retirement income conversation.

Chief executive Chris Evans said at the time: “With greater numbers of people including their property as a means to fund retirement aspirations and advisers adopting a holistic view of planning, drawing on all assets to fund financially demanding retirements, the combining of equity release and retirement income specialisms makes eminent sense.”

The firm’s traditional rivals Just Retirement and Partnership also announced a merger this summer, which may help boost their equity release divisions.

Jim Boyd, director of corporate affairs at Partnership, told FTAdviser, while the market has grown, equity release has not fulfilled its potential.

He said: “A review of regulation may help, but only if it encourages product innovation without removing some of the hard-won protections for consumers.”

Meanwhile, LV recently strengthened its equity release team by hiring Les Pick as a new business development manager focusing on the sector.

First half results, published today (8 September), showed the firm’s equity release sales were down to £33m, from £57m during the same period last year.

FTAdviser asked other life and pension firms about their intentions to enter the market.

A spokesman for Zurich responded that “it is not part of our current thinking as we don’t believe the commercial case is there at the moment.”

Axa Life Invest responded their business is focused specifically on unit-linked guarantees, so does not offer equity release and has no plans to do so. “We do agree however, that the market has opened up and that there is a need for a range of different providers and solutions with alternative product categories to come to the fore.”

Prudential left the equity release market five years ago, with a spokesman stating today this was a commercial decision at the time to focus on retirement savings and annuities.

Royal London, Canada Life, Standard Life and Aegon all confirmed they have no plans to offer equity release.

According to a Mintel report in May, the equity release market is forecast to grow to more than £2.3bn by 2019, as over 60s in the UK own nearly £1,300bn of housing equity.

Also speaking at the FCA’s mortgage conference yesterday was Equity Release Council chairman Nigel Waterson, who admitted those firms his organisation represents are only lending a fraction of the market’s potential, something which was partly down to awareness. “People and advisers just don’t think about equity release. It is a product of last resort rather than part of retirement planning.”

His comments followed those of the FCA’s director of strategy and competition Christopher Woolard, who noted that “in the not too distant past” equity release was “a dirty word”.

He said: “While we have seen a combination of regulation and industry-led initiatives to help clean up the market, some will argue that the costs of equity release, both up front and compounded over time, are relatively high for the individual, and that the previous image has stuck.

Mr Waterson later responded that the FCA is right to identify equity release as a potentially untapped market in the UK, welcoming their intention to explore ways that it could help ease the financial constraints on an ageing population.

“This regulation, it could be argued, has constrained the sector’s growth by restricting the number of providers choosing to enter it but we believe that consumer protection is at the heart of meeting consumers’ needs so far and must remain paramount in all future considerations.”

peter.walker@ft.com